On 2 July 2015, the Monetary Authority of Singapore (the “MAS”) issued its Response to feedback received on the proposed measures outlined in its “Consultation Paper on Enhancements to the Regulatory Regime Governing REITs and REIT Managers”. The MAS issued the Consultation Paper on 9 October 2014.
Among other things, the MAS proposals sought to strengthen the corporate governance of REIT managers and align incentives between the REIT manager and unitholders.
Following a detailed consultation process with industry players, the MAS has taken into careful consideration the feedback received and varied some of its proposals in order to strike a balance between enhancing safeguards for investors while facilitating the growth of the REIT market.
The following are some of the key points:
- REIT managers and directors to prioritise unitholders’ interests: REIT managers and their directors will be imposed with a statutory duty to prioritise the interests of unitholders over the interest of the REIT managers and their shareholders, in the event of conflicts of interests.
- Board independence and composition requirements of the board of directors of REIT manager (the “Board”): The MAS will require that at least half of the Board comprise independent directors where unitholders do not have the right to vote on the appointment of directors to the Board. Where unitholders have a right to vote on board appointments, at least one third of the Board must comprise independent directors.
- Audit committee (“AC”) requirements: REIT managers will be required to appoint a minimum of three directors for their AC. Directors whose responsibilities in the Sponsor’s group relate only to control or back-office functions will be allowed to be a member of the REIT manager’s AC. In such cases, the AC must comprise a minimum of three other independent directors.
- REIT managers will not be subject to re-appointment at regular intervals: REIT managers will not be subject to re-appointment at regular intervals.
- Single-tier leverage limit of 45% for all REITs: REITs will have a single-tier leverage limit of 45% without requirement for credit rating and the option for a REIT to leverage up to 60% by obtaining a credit rating will be removed.
- Increase in REIT development limit to 25% of its deposited property: REITs will be allowed to undertake property development activities up to 25% of its deposited property if (a) specific unitholders’ approval is obtained for the higher development limit of 25%; and (b) the additional 15% allowance (over the current 10% limit) is utilised solely for redevelopment of an existing property that has been held by the REIT for at least three years. The REIT must continue to hold such property for at least three years after redevelopment.
- AC of REIT manager to review and evaluate performance of the property manager connected with Sponsor at least once every two to five years: Where a REIT manager enters into a property management agreement (“PMA”) with an interested party, the AC should satisfy itself at least once every two to five years (and more frequently if the property manager’s compliance record is assessed to be poor) that the REIT manager has periodically reviewed the property manager’s compliance with the terms of the PMA.
- REIT managers may manage more than one REIT: The MAS will be prepared to consider applications from REIT managers to manage more than one REIT if the REIT managers have the necessary expertise, and properly mitigated the potential conflicts of interests arising from managing multiple REITs.
Savings and transitional provisions
In its Response, the MAS has set out various savings and transitional provisions.